Industry Updates

European investors pile into gold ETFs as US-China trade tensions weigh

Tom Eckett

a close-up of a gold bars

The ongoing trade war between the US and China combined with weaker-than-anticipated growth spooked investors last week causing them to pile into gold ETFs.

According to data from Ultumus, WisdomTree’s ETFS Physical Swiss Gold ETF (SGBS) saw the most inflows across all ETFs listed in Europe in the week to 7 June, with positive flows of $724m.

Close behind was the iShares Physical Gold ETC (SGLN), which saw inflows of $560m, while the Invesco Physical Gold ETC (SGLD) posted the fourth highest flows of $306m.

Volatility in stocks amid escalating US trade tensions with China and subsequently Mexico has driven this increased demand for safe-haven assets.

This has driven gold prices in recent weeks with the precious metal jumping to $1,348 an ounce last Friday, a 13-month high.

Washington and Beijing are yet to resolve their ongoing dispute with President Donald Trump slapping another round of tariffs last month after talks broke down between the two nations.

International Monetary Fund managing director Christine Lagarde last week said the trade war was the biggest risk to global growth, which could reduce China GDP by $455bn, according to IMF calculations.

“The first priority should be to resolve the current trade tensions – including eliminating existing tariffs and avoiding new ones – while we need to continue to work toward the modernisation of the international trade system,” Lagarde warned.

“This would be the best way for policymakers to give more certainty and confidence to their economies and to help, not hinder, global growth.”

G20 finance officials echoed Lagarde’s warnings at the end of a summit in Japan claiming risks to global growth “remain tilted to the downside” due to trade and geopolitical tensions.

Furthermore, the Federal Reserve’s interest rate outlook is also driving flows into gold. Markets are now predicting the US central bank will cut rates at some point this year which should be supportive for the precious metal.

Fed chair Jerome Powell said on 4 June, the central bank would “act as appropriate” if trade tensions continued.

“We do not know how or when these issues will be resolved. We are closely monitoring the implications of these developments for the US economic outlook and, as always, we will act as appropriate to sustain the expansion, with a strong labour market and inflation near our symmetric 2% objective,” Powell said.

Last month, investors poured $800m into gold ETPs, according to BlackRock, the first positive month of flows for the commodity since January.

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